Smells Like Fiscal Policy? Assessing the Potential Effectiveness of the ECB's OMT Program

Arbeitspapier

This paper explores the potential effectiveness of the ECB's Outright Monetary Transaction (OMT) program in safeguarding an appropriate monetary policy transmission. Since the program aims at manipulating bank lending rates by conducting sovereign bond purchases on secondary markets, a stable relationship between bank lending rates and government bond rates is of prime importance. Using vector autoregressive models with time varying parameters (TVP VAR) we evaluate the stability of this relationship by focusing on the reaction of bank lending rates to movements in government bond rates over the period 2003 2013. Our results suggest that the potential success of OMTs in restoring the monetary transmission mechanism is limited as the link between bank lending rates and government bond rates has substantially weakened since the end of 2008.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 4628

Classification and Topics

• Classification: Wirtschaft ; Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems ; Interest Rates: Determination, Term Structure, and Effects ; Financial Markets and the Macroeconomy ; Central Banks and Their Policies ; Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
• Subject: European Central Bank ; OMT program ; time varying parameter vector autoregressive model ; interest rate pass-through

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Hristov, Nikolay ; Hülsewig, Oliver ; Siemsen, Thomas ; Wollmershäuser, Timo
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2014

Further information

• Handle: http://hdl.handle.net/10419/93421
• Last update: 10.03.2025, 11:43 AM CET